In August 2010 the US Congress passed legislation (known as FATCA) that requires foreign financial institutions and companies that invest in the US to report to the IRS their US account holders and investors. Failure for these companies to comply with this requirement will result in a 30% US tax on their US income and gains on US assets.This legislation will come into force soon.

As a result foreign institutions have already begun the process of identifying their US account holders and investors.

Consistent with its efforts under FATCA and as part of its efforts to combat tax evasion, the Treasury Department issued regulations on April 17^th (T.D. 9584) that require financial institutions with offices in the United States to report to the IRS the payments of as little as $10 of interest to non-resident aliens who reside in certain treaty countries; even though generally such interest is not subject to US income tax!

Interesting—the new regulations do not require the financial institution to inform its account holders that this information is being provided to the IRS.

The United States has a number of tax treaties with countries throughout the world. These treaties provide for a “sharing” of information between the countries. Clearly the IRS will use the information gleaned from this new reporting requirement to strengthen its information sharing arrangements with its treaty partners.

The new regulations come into effect with respect to interest paid after January 1, 2013.